Hospital official: Bankruptcy not yet declared

December 4, 2013

IRVING - Leaders at Lake Shore Hospital are keeping their options open, but have not filed for bankruptcy, according to a hospital official Tuesday.

In a phone interview, Divisional Director of TLC Health Network Scott Butler said there has not been any paperwork filed to enter the hospital into bankruptcy.

"We are definitely looking at all of our options, including filing for bankruptcy. To my knowledge, paperwork has not been filed for that. However, with the financial situation of the hospital, we have to keep all of our options open," he said.

Butler said he did not think that Barry Corvert, lawyer for bidder on the hospital Tony Borrello, was incorrect in his statements; the message was simply "misinterpreted."

"I think he was trying to say that it is an option that makes a lot of sense, but it came off like it has already happened and that is not true," Butler stated.

In an interview with the OBSERVER Monday, Corvert said filing for Chapter 11 bankruptcy would be a "good thing" and would help his client in purchasing the hospital. He added this is a positive step and does not mean closing the facility.

Fact Box

It allows a business to propose a plan for profitability post-bankruptcy.

It puts a temporary hold on collection of debts.

The U.S. Bankruptcy Court, in Buffalo in Lake Shore Hospital's case, oversees the process and has the authority to approve a reorganization plan and the negotiation of debt repayment terms.

All creditors are entitled to be heard by the court.

Creditors are incentivized to work with the debtor to make compromises because they would not get better terms with Chapter 7 bankruptcy action, also called liquidation.

Executory contracts, including labor union contracts, supply and operating contracts and real estate leases, may be canceled if doing so would be financially favorable to the business.

If a business' debts exceed its assets the business could be left with nothing and the creditors take ownership of the newly reorganized business.

Chapter 11 bankruptcy rarely results in liquidation.

"This is not closing at all, this is a step to make sure the hospital does not close," he said.

State Senator Catharine Young agreed that filing for bankruptcy makes sense.

"I think filing for bankruptcy could be a positive thing because it buys the hospital time to restructure and maintain providing critical services like the emergency care, the ambulatory care and behavioral health," she said in a phone interview Tuesday. "We would like to be able to save as many services as we can. The hospital's closure would be a devastating blow to the community in terms of medical care, but also a huge economic loss. I think if there is a way to turn this around we should take every opportunity to do so."

Young has been very involved in the issue since the imminent closure was announced Oct. 16. Young sent to state Health Department Commissioner Nirav R. Shah, MD in November to urge him to consider the community's need before allowing Lake Shore Hospital to close.

She said two weeks ago she toured the facility with a department of health representative so "they could see first hand the major investment the state has made in the hospital."

She said she will continue to work with the department of health as well as the new board of directors and Interim CEO John Galati as the situation progresses.

Chapter 11 bankruptcy is a process intended for reorganizing a business to make it profitable and involves negotiating with creditors on outstanding debts. This differs from Chapter 7 bankruptcy which involves liquidating assets.

Butler said a decision to file for bankruptcy, or any major decision by the board will be announced to the public.

Lake Shore Hospital is set to close Jan. 31. The hospital provides emergency and other health services to the northern Chautauqua County community as well as Cattaraugus and southern Erie counties and also employs 460 workers.